What We Believe

[bingybear]

See read items

We believe that for most here:

1. Early retirement means retiring at 55 or earlier. Some will disagree.. I don't have a firm number for this
2. Hope is not a strategy.
3. Living below your means prior to retirement is the key to attaining ER.
4. FireCalc can give you one of the best predictions as to whether you’re ready financially to retire, but that you should use multiple retirement calculators and/or Monte Carlo simulators to confirm your results. While I have run firecalc, it is not my choice in calculators
5. Follow the 4% rule or better yet, make it the 3-3.5% rule (confirmed by FIRECALC). I disagree. The 4% rule was proposed by the Trinity study came up with the 4% WR for a 30 year retirement. I RE @ 53 and plan for at least a 50 year retirement. 4% is questionable in that case
6. You need to know your budget prior to retirement. It is a good goal, but how do you plan the unexpected? How do you handle a stroke shortly after RE, you are alive, but need to hire help for much of daily life. -- I would say have a conservative budget with contingency items.
7. You need to know your budget in retirement, and ensure you’ve accounted for everything, including health insurance and possibly LTC.
8. Diversified investments diversify risk. Reduce risk
9. Asset allocation is king.
10. Maintain a solid asset allocation, especially in retirement. Most include some equities (50-60%+ with some % of international funds), some bonds/bond funds (10-60%), and cash/money market/CD reserves (1-3 years living expenses).
11. Invest in mutual funds, not individual equities (which carry higher risk).
12. Timing the market does not work as effectively as long-term investment with AA.
13. Save and invest with withdrawal strategies in mind (including taxes). This means having both taxable and tax-deferred investments.
14. Determine the best time for you and your spouse or SO to take SS.
15. Plan for a decrease in SS benefits (say, 25%).
16. Plan for the elimination of the ACA in its present subsidized form.
17. Have something to retire to.
18. Plan to maintain or exceed one’s pre-retirement standard of living in retirement.
19. Avoid annuities.Avoid overly expensive annuities.
    Use where appropriate
20. Avoid speculative ‘investments’ with no basis in value.
21. Your investable assets are what matters, along with any debt. The value of your house or classic car collection are not investable assets, unless you are going to sell them.

 

[Dtail]

See read items

Planning on living to 103. Hats off to you.

 

[bingybear]

Planning on living to 103. Hats off to you.

My dad was paralyzed by a stroke at birth and had epilepsy. They gave him a life expectancy of 21. He lived to 63. My mom had her first stroke at 10 which paralyzed her on her left side. She lived to 71.

No strokes here, but a dual chamber pacemaker at 51. I see my cardiologist once a year. This year I told my cardiologist about 90 miles of hiking NZ with full packs. -- 57 now. So how do you plan for end age. I hope not by using your expected age (mean or average age for your sex). I've run it out further with RIP. I have no idea how old I'll live to, but I don't want to plan on 85 and then live to 95 and broke for the last 10 years.

After all I've been thru, each day is a blessing.

 

[mystang52]

I don't literally agree with entire list, but as a general concept it's on point. One glaring omission: avoid Financial Advisors, unless Fee Only.

 

[kevdude]

Well I got that one right! I know several who didn't.

Which is precisely why I made sure we did.

 

[Dtail]

My dad was paralyzed by a stroke at birth and had epilepsy. They gave him a life expectancy of 21. He lived to 63. My mom had her first stroke at 10 which paralyzed her on her left side. She lived to 71.

No strokes here, but a dual chamber pacemaker at 51. I see my cardiologist once a year. This year I told my cardiologist about 90 miles of hiking NZ with full packs. -- 57 now. So how do you plan for end age. I hope not by using your expected age (mean or average age for your sex). I've run it out further with RIP. I have no idea how old I'll live to, but I don't want to plan on 85 and then live to 95 and broke for the last 10 years.

After all I've been thru, each day is a blessing.

I hear ya. I have RIP only going out to 92, but we shall see.

 

[bingybear]

I hear ya. I have RIP only going out to 92, but we shall see.

We started planning to the mid 90's and have just stretched that out over time. At some point you really are planning for eternity. Changing the number of years has little change.

If I look at a joint life expectancy calculator it looks slim for either of us to make 103. But each year longer we live, it gets more likely. I have relatives that almost made 100 years old and were born about 1900. What was the likelihood for living that long at that time?


How do you best plan for living on the tails of the distribution? Take SS late, annuity, plan to have some money left to live on, or land on the kids door step?

 

[kcowan]

If I look at a joint life expectancy calculator it looks slim for either of us to make 103. But each year longer we live, it gets more likely. I have relatives that almost made 100 years old and were born about 1900. What was the likelihood for living that long at that time?

How do you best plan for living on the tails of the distribution? Take SS late, annuity, plan to have some money left to live on, or land on the kids door step?

The key assumption we made was life expectancy. Median indicated 91 but the 10% tails were 84 and 98. So we plan for the "worst case" of living until 98. Even if we are wrong, the extra money can be used for LTC, or just extra living costs after 84.

 

[Ready-4-ER-at-14]

Agreed with most of the list.

Notable exceptions;

I have openness to direct stock holdings (diversified with no stock being too great of a holding) My belief is the changes in indexes create a cost that may be similar to one stock taking a nasty hit. Note I still hold funds although I believe they can be and are front run.

I have openness to annuities mostly single premium immediate annuities and single premium deferred.

 

[Kristinia]

what we believe

IMO you don't have to have something to retire to....sometimes just not being tied to a cubicle or desk is good enough reason to retire. Time that belongs to you is a wonderful thing...

 

[audreyh1]

I don’t think everyone here believes before 55 is the hurdle for ER. More like before 65.

 

[audreyh1]

Our plan is that our standard of living will go up when we retire in 9 months. With all that free time available, we'll have more opportunity to spend money. When I run FIRECalc, I use twice our current actual spending. I'm sure we won't really spend that much, but it gives me comfort to know we could and still get a 100% success rate.

Same here - in terms of planning on a higher standard of living in retirement. Which did happen as we had way more time to do stuff

 

[W2R]

Well, I had to peek in this thread and see what people are saying. Obviously we are not a monolithic group with identical beliefs on the issued brought up by HNL Bill. Here's my take on them (in blue):

1. Early retirement means retiring at 55 or earlier.
   
   I think that if you feel you are early retired, you are. I was brought up to think that the expected retirement age is around 67 or older. I retired at 61.
   
   
2. Hope is not a strategy.
   
   Careful, meticulous, methodical planning can do wonders.
   
   
3. Living below your means prior to retirement is the key to attaining ER.
   
   We can control our spending (if we want to), but if salaried we may not find it as easy to control our income. So, often it seems easier to save more than to spend less.
   
   
4. FireCalc can give you one of the best predictions as to whether you’re ready financially to retire, but that you should use multiple retirement calculators and/or Monte Carlo simulators to confirm your results.
   
   I like FIRECalc but feel it is necessary, but not sufficient, to get an OK from FIRECalc. I used every free calculator I could get my hands on and ran a few of my own simulations.
   
   
5. Follow the 4% rule or better yet, make it the 3-3.5% rule (confirmed by FIRECALC).
   
   I think 4% is probably reasonable if you retire at 65-70 years old and have some flexibility in your spending. But at younger ages, 3.5% or maybe down to 2% for our youngest dreamers, would probably be smarter.
   
   
6. You need to know your budget prior to retirement.
   
   Does anybody not know this? Even working people need to spend within their means if they don't want creditors pounding on the door.
   
   
7. You need to know your budget in retirement, and ensure you’ve accounted for everything, including health insurance and possibly LTC.
   
   And income taxes.
   
   
8. Diversified investments diversify risk.
   
   My father taught me when I was a little girl that diversification lowers risk and explained what that meant and why. Not that I had anything to invest at that age but dads sometimes say weird things to their kids when they are preoccupied.
   
   
9. Asset allocation is king.
   
   No, Frank is King. Asset allocation is part of your financial plan.
   
   
10. Maintain a solid asset allocation, especially in retirement. Most include some equities (50-60%+ with some % of international funds), some bonds/bond funds (10-60%), and cash/money market/CD reserves (1-3 years living expenses).
    
    Again, make a written financial plan and stick to it.
    
    
11. Invest in mutual funds, not individual equities (which carry higher risk).
    
    Depends on your risk tolerance, age, and so on. Your financial plan should be tailored to you, your age, your personality, your needs, blah blah blah.
    
    
12. Timing the market does not work as effectively as long-term investment with AA.
    
    In my opinion timing the market is gambling since none of us are prophets. Will the roulette wheel land on red or black? Timing the market works quite well when it works. With risk comes reward. Problem is, it doesn't always work.
    
    
13. Save and invest with withdrawal strategies in mind (including taxes). This means having both taxable and tax-deferred investments.
    
    It's not all that complicated. Have as much in taxable and as much in tax deferred as you can.
    
    
14. Determine the best time for you and your spouse or SO to take SS.
    
    Well, it wouldn't work very well to take SS at the worst time.
    
    
15. Plan for a decrease in SS benefits (say, 25%).
    
    Nope!!! Because of all the horror stories, I planned to be able to at least survive without any SS at all. To me it is all gravy now that I have it.
    
    
16. Plan for the elimination of the ACA in its present subsidized form.
    
    I don't use the ACA and I know nothing about it whatsoever. I have employee/retiree insurance and Medicare. That didn't just happen accidently; it was thoroughly planned. I took the job for the retirement benefits, before ACA even existed.
    
    
17. Have something to retire to.
    
    Nope!! Absolutely not. It sure was unnerving to hear that mantra repeated so very often and often so mindlessly by so many before I retired. It was like being surrounded by the Stepford future retirees, and pretty creepy. Personally I had NOTHING to retire to, and I am probably the happiest retiree who ever lived.
    
    
18. Plan to maintain or exceed one’s pre-retirement standard of living in retirement.
    
    Few would plan to retire in relative poverty. Figure out the annual income you will need for a happy retirement, and use that as your goal for retirement income.
    
    
19. Avoid annuities.
    
    Well, unless you have a particular reason to need them. I am thinking of a small one later on, for extreme old age. We'll see.
    
    
20. Avoid speculative ‘investments’ with no basis in value.
    
    This would not be my investment style. As I mentioned, with great risk comes great reward sometimes. I don't need to take that kind of risk. Others do. I feel sorry for them.
    
    
21. Your investable assets are what matters, along with any debt. The value of your house or classic car collection are not investable assets, unless you are going to sell them.
    
    WHAT MATTERS? Wow. (sputter, sputter!!) There are lots of things that matter in life. My Dream Home is something I have longed for all of my life, and now I finally have it, and it matters a great deal to me. Living in it brightens every day of retirement for me. I regard it as a possession, not an investment, if that is what you meant. It does not produce income for me to spend on food, utilities, or my Amazon habit. I plan to live in it until the day I die, and then my heirs can fight over it and decide if it matters to them. Oh, and personally I choose to not have any debt so that part does not apply to my retirement.
    

 

[brucethebroker]

In our case, items
1
4
5
9
10
15
17
20
do not apply.
But that is OK. We do not fit/agree with many of the accepted "rules" of ER including having a mortgage during ER, having invest-able assets well short of 1M, having a PT hobby business and having the majority of invest-able assets invested outside of the stock market.

I appreciate the effort, however....

 

[joeea]

Even if we are wrong, the extra money can be used for LTC, or just extra living costs after 84.

How can the "extra money" be used for LTC?

You can't know you were "wrong" until you die.

 

[donheff]

IMO you don't have to have something to retire to....sometimes just not being tied to a cubicle or desk is good enough reason to retire. Time that belongs to you is a wonderful thing...

+1 The mantra that you must have something to retire to reminds me of the constant harping we got at work about how critical it was to have short term and long term career goals. "Where do you see yourself in 5 years, 10 years?" "If you don't know where you are going, how will you know when you get there?" I always felt like saying, "I don't have a clue but when I get there I'll tell you." And low and behold, I got there.

 

[Amethyst]

I got a sad kick out of looking at my past career goals. "I want to head up XYZ Organization in 5 years." Five years later, there had been a major reorganization, and XYZ was in 5 pieces or no longer existed.

+1 The mantra that you must have something to retire to reminds me of the constant harping we got at work about how critical it was to have short term and long term career goals. "Where do you see yourself in 5 years, 10 years?" "If you don't know where you are going, how will you know when you get there?" I always felt like saying, "I don't have a clue but when I get there I'll tell you." And low and behold, I got there.

 

[kcowan]

How can the "extra money" be used for LTC?

You can't know you were "wrong" until you die.

The extra money comes from using the 10%ile in life expectancy. I see little discussion about this here. Does that mean that others are using the median? Do you understand statistics?

 

[joeea]

The extra money comes from using the 10%ile in life expectancy. I see little discussion about this here. Does that mean that others are using the median? Do you understand statistics?

I do understand statistics.

I don't understand using up "extra money" early while planning for the "worst case" of living until 98. The two seem contradictory.

You wrote: "So we plan for the "worst case" of living until 98. Even if we are wrong, the extra money can be used for LTC, or just extra living costs after 84."

So at what age do you conclude that you have extra money and start spending it on LTC or extra living expenses? And what happens if you consequently live to 98? Maybe you can clarify...

 

[carty1]

I agree with all except #19.
If you have money and think you have to immediately spent it...you need an annuity!

 

[Scratchy]

1. Invest in mutual funds, not individual equities (which carry higher risk).
2. Timing the market does not work as effectively as long-term investment with AA.

22. Notwithstanding the items above, it is OK from time to time to report significantly outperforming the market, as long as done in the form of a humblebrag.

 

[kcowan]

I do understand statistics.

I don't understand using up "extra money" early while planning for the "worst case" of living until 98. The two seem contradictory....

There is only a 10% chance that I will live to 98, yet I plan for it to be funded. The funding for the extra 7 years represents a financial buffer if I believe in statistics. That financial buffer can be spent on anything. The odds of needing that money is low.

How many people here use the 10 percentile when planning for retirement. If the answer is everybody, then I guess it is not extra.

 

[Scott_Howard]

What I believe

I believe I’ll have a beer.

 

[HI Bill]

IMO you don't have to have something to retire to....sometimes just not being tied to a cubicle or desk is good enough reason to retire. Time that belongs to you is a wonderful thing...

Yes, it may be for some, depending on your age, and health.

But if you retire at least 10 years before 65, and are a driven person, retirement and doing 'nothing' may not suit you. I had four sets of friends who were couples on Maui. Each retired around age 50 with multiple millions of dollars (one had at least 10s of millions). Two went to work almost immediately after moving there to retire and dive (one couple bought and sold and rented properties, and one went back to selling real estate; a third couple still managed rental properties, and when her former boss died unexpectedly, she returned to her former job to save the company from extinction). The rest started working a few months later. One's now 69 and still working! Like everything else, it's a very personal thing.

In my office, there are about 10 former Federal employees who retired from their job....then came to work for the private sector. (One of them had a wife who said his being home all day was interfering with her routine). To each his/her own, but when I'm at home with nothing to do for two days, I start to go stir crazy. My plan is travel, photography, diving, and trying to get some dive magazine articles published for fun. And maybe try my hand at teaching underwater photography for fun. We'll see!

 

[HI Bill]

22. Notwithstanding the items above, it is OK from time to time to report significantly outperforming the market, as long as done in the form of a humblebrag.

Sure! As long as you report the times when you significantly underperform the market! For every winner, there's a loser!